Illinois Dentists With Med Spa Dreams Are In For a Rude Awakening

Jordan Uditsky • October 19, 2021

Developed as a combination of a medical clinic and traditional spa, medical spas are a global phenomenon, attracting a growing, loyal, and upscale clientele. The global med spa industry was valued at $13.82 billion in 2019 and is expected to grow to $47.14 billion by 2030. According to the AmSpa 2019 Medical Spa State of the Industry Report, the average med spa brings in revenue of more than $1 million annually, with top practices bringing in $4 million to $5 million each year.

 

Given these figures, it’s no surprise that physicians with traditional practices are expanding into the medical spa industry in increasing numbers, either as owners or medical directors. Dentists have taken notice as well, and are also looking at med spas as a growth and investment opportunity. But Illinois dentists with med spa dreams are in for a rude awakening. Simply put, a dentist cannot own or operate a medical spa in the state of Illinois. And dentists also need to be wary about providing services in a med spa environment, as they may be practicing outside the parameters set by the Illinois Dental Practice Act.

 

The “Med” In Med Spa Requires Physician Ownership

 

Med spas offer many non-medical, traditional spa treatments, such as massages, hair removal, and facials. But they also include more specialized and invasive medical aesthetic therapies on their menu of services, such as Botox, dermal fillers, liposuction, and platelet-rich plasma skin rejuvenation.

 

This latter “med” aspect of med spas brings them under the governance of the Illinois Medical Corporation Act. That act prohibits the “corporate practice of medicine,” meaning that only physicians licensed under the Illinois Medical Practice Act can own a facility, like a med spa, that provides “medical or surgical treatment, consultation or advice.”

 

Licensed though they may be under the Illinois Dental Practice Act, dentists are not licensed under the Illinois Medical Practice Act. As such, they cannot own or possess an ownership interest in a med spa.

 

Dentists Need to Be Wary Of Providing Med Spa Services Beyond The Allowable Scope of Their Licenses

 

The scope of treatments and services that Illinois dentists can provide their patients is defined by the Illinois Dental Practice Act. The act defines dentistry as “the healing art which is concerned with the examination, diagnosis, treatment planning and care of conditions within the human oral cavity and its adjacent tissues and structures.” Section 17 of the act sets forth in more detail what does and does not constitute the practice of dentistry in Illinois.

 

Many dentists administer Botox or other injectables as an adjunct to certain treatments. But dentists should not assume that their use of Botox or similar injectibles in their practices means that they have carte blanche to administer those treatments in a med spa setting. So long as those injections are in “adjacent tissues and structures” to the oral cavity, they are within the allowable scope of dentistry in Illinois. But a dentist who injects Botox into a patient’s forehead would be hard-pressed to claim that such treatment falls within the scope of “dentistry” as defined by Illinois law

 

For similar reasons, an Illinois dentist cannot serve as “medical director” of a med spa either. Serving as a medical director at a medical spa includes responsibility for all medical treatments administered by the spa —not just the ones that involve the mouth or adjacent areas. This can consist of such services as laser hair removal and laser skin tightening and rejuvenation to other parts of the body. Overseeing medical procedures such as these is beyond the scope of allowable dental practice in Illinois.

 

Accordingly, Illinois dentists should tread carefully when considering an opportunity to either own or provide services at a medical spa. Consulting with an experienced dental practice attorney is the best way to ensure that you don’t put yourself and your license at risk.

 

We Focus on You So You Can Focus on Your Patients

 

At Grogan, Hesse & Uditsky, P.C., we focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you.

 

Please call us at (630) 833-5533 or contact us online to arrange for your free initial consultation.

 

Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices, and this blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.

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Whether you are the associate or the practice owner in such an anticipated transaction, you should consult with an experienced dental practice attorney to understand your options and determine which structure provides you with the most value. Your discussions with your attorney will likely include some or all of these common dental associate buy-in arrangements: Cash Purchase A cash purchase is the most straightforward buy-in model. With either cash on hand or through financing (the more likely scenario), the associate purchases an agreed-upon percentage of the practice (for example, 25% or 50%) for a lump sum based on the appraised value of the practice. That appraisal will likely use metrics such as collections, earnings before interest and taxes (EBIT), or a percentage of annual gross revenue. The main advantage of a cash purchase is its simplicity and immediacy. The associate becomes an owner right away, while the practice owner receives a clean and full payout for the equity sold. However, obtaining the needed financing may be easier said than done for an associate dentist, and a large cash payout may also come with unwanted tax ramifications for the owner. Buy-in documents for a cash purchase should address governance rights, profit distribution, and exit mechanisms. They should also define what happens if an associate departs, how future buyouts are valued, and whether non-compete or non-solicitation covenants apply. Installment Sale An installment sale allows the associate to purchase equity over time, making periodic payments instead of an upfront lump-sum payment. After the practice value is determined, the associate agrees to buy a certain percentage of ownership through regular payments (e.g., monthly or quarterly) over several years. Payments may include interest, and ownership may be transferred incrementally or upon full payment. This is a good option for associates who do not have the means for a full cash buy-in immediately. For owners, this arrangement provides a steady income stream – so long as the associate does not leave before completing payments. That is why the documentation should clearly outline the timing of ownership right transfers and provide robust default remedies, such as forfeiture of prior payments or reversion of ownership interests. Sweat Equity In a sweat equity buy-in, the associate essentially cashes in their years of service, earning ownership over time based on their contribution to the practice’s growth or profitability rather than through an immediate cash investment. In a typical sweat equity arrangement, the associate receives equity credits or options tied to measurable performance benchmarks, such as production levels, collections, or tenure. Once those targets are met, a portion of ownership is granted or sold at a reduced price. This structure enables talented but liquidity-challenged associates to become owners without initial financial strain. It also incentivizes them to grow the practice and stay long-term. Shadow Account (a/k/a Phantom Equity) As I discussed in detail in this post , a shadow account (also known as a phantom equity plan) is an increasingly popular buy-in model, especially when the owner is not yet ready to transfer real equity but wants to reward the associate as if they were an owner. In this model, the associate receives the right to cash payments equal to the value of the shares at a specified later date or distribution event. That value can be established through an appraisal or an agreed-upon formula. The selected events that give an associate a right to a payout can include such things as achieving performance goals, termination, or retirement. There are two types of shadow account/phantom stock plans. In an "appreciation only” plan, the cash payout upon vesting does not include the value of the underlying shares, only the increase in value of that stock since it was granted. In a “full value” plan, the practice pays both the underlying value of the stock and the amount the stock has appreciated while held by the associate. Like actual stock, phantom stock has a defined value and tracks the practice’s performance, but an associate holding phantom stock typically does not have either minority shareholder rights or voting rights in the practice. This makes phantom stock plans attractive for owners who want to provide associates with a sense of equity ownership without giving up any actual control. The practice has broad discretion and flexibility in designing the plan, including valuation formulas and vesting conditions, and the administrative burdens are less than for traditional stock option plans. As noted, the “best” buy-in structure depends on the unique goals of both parties. No matter which model is ultimately adopted, well-crafted documentation, preceded by careful consideration and consultation with counsel, is essential. That is because these deals do more than just transfer ownership - they can lay the foundation for a stable, profitable partnership that preserves the practice’s legacy and rewards everyone’s investment, financial or otherwise. We Focus on You So You Can Focus on Your Patients At Grogan Hesse & Uditsky, P.C., we focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you. Please call us at (630) 833-5533 or contact us online to arrange for your free initial consultation. 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